Will the OBR torpedo Truss and Kwarteng’s growth plan?

It is easy to forget that tax cuts were meant to be the easy part of the Truss agenda. Far more difficult will be the supply side reforms and the spending restraint necessary to put the public finances on a better path. At the government’s medium term fiscal event, currently scheduled for November 23^rd but which may be brought forward, Kwasi Kwarteng will have to say how he will sort the public finances. In the Times today, I look at his options. 

Truss and Kwarteng hope that their approach will boost the trend growth rate of the economy to 2.5 per cent. If they can achieve that, then the public finances will begin to look an awful lot healthier. But the problem for them is their coming fiscal event will be accompanied by a much-anticipated Office for Budget Responsibility forecast. Those close to Truss are not optimistic that the OBR will significantly uprate its growth forecast; the Truss/OBR views of the economy are very different. The OBR is sceptical, as many economists are, of how quickly supply side reforms will boost the economy.

The problem is that it’s the OBR’s job to ask if the public finances are on a sustainable path. Set up by George Osborne as a trap for high-spending Labour governments, the OBR is now becoming a check on Tory profligacy. The markets will want reassurance from the OBR, especially as its offer of a forecast to accompany the mini budget was rejected. So, Truss and Kwarteng will have to find around £30 billion of cuts if the OBR forecast is not to add to market worries about the UK.